Animal feed processing enterprises AFPEs of the animal feed processing industry are operating in an environment with a lot of difficulties related to the production and consumption of pr
Trang 11 MINISTRY OF EDUCATION AND TRAINING
NATIONAL ECONOMICS UNIVERSITY
-
TRAN THI DU Improvement of cost accounting and enhancement of cost management in animal feed processing enterprises Major: Accounting (Accounting, auditing and analysis)
Code: 62.34.30.01 SUMMARY OF THE DOCTORAL THESIS IN BUSINESS AND MANAGEMENT HA NOI - 2012 2 The work is completed in:………
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Scientific instructor: 1 AP.Dr Nguyen Thi Dong
2 AP.Dr Dinh Thi Mai Judge 1:………
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Judge 1:………
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Judge 1:………
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The thesis will be defended before the State-Level Thesis Marking Council in ………
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At………on……….………
For details about the thesis, please refer in the library:………
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PREFACE
I Introduction
1 The reason for choosing the research topic
Accounting is considered as a tool of financial management because it
provides the information necessary for finance through accounting reports,
especially information of management accounting Thus, in an enterprise,
accounting is always connected with the functions of managers including
planning, organization, direction and coordination, comparison of actual results
with the plan Animal feed processing enterprises (AFPEs) of the animal feed
processing industry are operating in an environment with a lot of difficulties
related to the production and consumption of products; improvement of
accounting costs in AFPEs has become an urgent need for AFPEs to provide
information for the process of cost management and business management of
enterprises Therefore, the author chose the topic "Improvement of cost
accounting and enhancement of cost management in AFPEs"
2 The purpose of research
With the research topic, the author will go into the systematization of
theories of cost accounting in production enterprises Also, the author will
survey and assess the real situation of cost accounting in AFPEs in Vietnam
Since then, the author will offer solutions and conditions to apply cost
accounting to AFPEs in Vietnam to enhance cost management in this type of
enterpries
3 Research subjects
Firstly, the thesis studies theories of cost accounting in production
enterprises in order to make a general theoretical framework of cost accounting
that can be applied to production enterprises in general Then, the thesis goes
into the survey on the implementation of cost accounting work in AFPEs in the
direction of analyzing enterprises’ size to assess the organization of the cost
4 accounting work on the basis of AFPEs’ sizes
4 The scope of research The scope of research contents
The author chooses the topic "Improvement of cost accounting and enhancement of cost management in AFPEs" Cost accounting to enhance
corporate governance includes financial accounting and management accounting However, for the purpose of enhancing cost management, the topic goes into studying of cost management accounting to provide information for enhancing cost management in AFPEs For financial accounting, the author only studies at the combination level to collect information of historical costs
The scope of research subjects
The author selects the research scope of AFPEs in the northern region because they are characterized by heavy concentration in the Red River Delta area and the northern area has a full of enterprises in all models for research
II Overview of research
There are many research topics on application of management accounting in enterprises, in which there are some research topics on the issue of cost
management accounting in enterprises such as the thesis "Organization of production cost management accounting in animal feed production enerprises" (2006) (Pham Quang Man - National Economics University) The
topic goes into the study of business and production cost accounting in three typical enterpries for three major types of business ownership including the Central Animal Feed Joint Stock Company, Peter Hand Hanoi Joint Venture Company and Kien Cuong Production and Trading Co., Ltd However, the topic only offers assessment on the real situation of cost accounting in these three enterprises without the investigation and assessment on a large scale to draw objective conclusions of real situation of cost accounting for AFPEs in general and AFPEs according to each scale In addition, there are some essays, thesiss
studying this issue such as the thesis "Direction of building management accounting reporting system and organizing application to enterprises of Vietnam" (2002) (Pham Quang - National Economics University), the thesis
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"Building of cost management accounting model in pharmaceutical
enterprises of Vietnam" (2007) (Pham Thi Thuy - National Economics
University), the thesis "Management accounting and analysis of production
costs in the production sector in Vietnam" (2002) (Le Duc Toan- Academy of
Finance.) Some theses also studied on accounting management as the thesis
"Direction of building contents and organizing the application of
management accounting to enterprises of Vietnam" by the author Pham Van
Duoc (2007) (Ho Chi Minh City University of Economics), the author Tran
Van Dung with the thesis: "Organization of management and cost price
accounting in production enterprises in Vietnam" (2002 –Academy of
Finance), the author Giang Thi Xuyen (2002) with the topic "Organization of
management accounting and business analysis in state-owned enterprises",
the author Pham Thi Kim Van (2002) with the topic "Organization of cost
management accounting and business performance in tourism trading
enterprises", the author Nelson U Alino with the topic “The Effect of
Management Accounting Systems on Reducing Conflict and Improving
Decision-Making in Heterogeneous Groups” (University of Nigeria, 1990), the
author Robin A Sanford with the topic “The impact of activity-based costing on
organization performance (Nova Southeastern University, 2009), etc However,
the above mentioned theses and researches have had non-comprehensive scope
of research and not resolved the research problem that the author is interested
yet That was improvement of cost accounting to enhance cost management in
enterprises in animal feed processing industry; therefore, the author chose the
topic "Improvement of cost accounting and enhancement of cost management
in AFPEs" as research topic of the thesis
III Research methodology:
The author delivered investigation sheets to 52 AFPEs and interviewed four
AFPEs that were Rural Technology Development Joint Stock Company, CP
Vietnam Corporation - Xuan Mai Branch, Hoang Linh Breeding Technology
Development Joint Stock Company, Vimark Company Ltd The author used
SPSS software to collect and classify data in order to demonstrate assessments
and summaries of the thesis
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IV The layout of thesis:
In addition to the preamble and conclusion, the thesis includes three major chapters:
Chapter 1: Basic theory of cost accounting and cost management enhancement in production enterprises
Chapter 2: Real situation of cost accounting and cost management enhancement in AFPEs
Chapter 3: Improvement of cost accounting and enhancement of cost management in AFPEs
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Chapter 1:
BASIC THEORY OF COST ACCOUNTING AND COST
MANAGEMENT ENHANCEMENT IN PRODUCTION ENTERPRISES
1.1 Concepts of cost, cost management and cost accounting
information and enhancement of cost management in production
enterprises
1.1.1 Concept of cost
According to the conception of political economy, cost is the monetary
valuation of wastes of human labor and materialized labor that enterprises invest
in production and business organization for a certain period of time According
to the concept of cost from the accountant's perspective, in financial accounting,
"cost includes production and business costs arising in the business operation of
enterprise and other costs." For management accounting, costs are very various
It can be actual costs incurred such as costs in financial accounting; in addition,
there are estimated costs that are non-incurred costs, opportunity costs are the
costs that are not in the accounting books or could be estimated or expected
costs of an activity Thus, there are a lot of concepts of cost, especially in
management accounting This indicates that there is no single definition for the
cost because of two reasons: Firstly, the costs incurred and used for some
specific purposes; secondly, the way to use cost will determine how to calculate
the cost and record, analyze, process costs For management accounting,
depending on the purpose of using cost information, the cost will be collected,
calculated and analyzed in different ways or under different classifications to
exploit relevant cost information for decision-making in a most efficient way
1.1.2 Cost management, cost accounting information and enhancement
of cost management in production enterprises
Corporate governance is a continuous, organized and targeted process of
impact of enterprise owner on employees in it, using the best of the potential and
opportunity to implement its business and production activities to achieve the set
8 forth goals in accordance with the laws and social practices Performing corporate governance is the process of implementing major functions of corporate management and decision-making surrounding four major functions: planning, plan implementation, performance measurement, and comparison of
actual results with the plan Cost management includes a system of methods
developed for planning and control of activities leading the arising of enterprises’ costs Cost accounting plays an important role in providing useful information for cost managers, serving them in gathering their competence on the strengths, looking for opportunities, identifying resources with the lowest cost and improving the products’ and services’ quality
1.2 Cost accounting to serve cost management in production enterprises
1.2.1 Classification of costs in business and production enterprises to serve cost management
Contents of cost are very diversified and rich and can be categorized according to many different criteria The thesis states seven ways of cost classification: Cost classification according to operation functions, cost classification based on cost factors, cost classification based on cost behavior, cost classification based on the relationship between cost and object of cost accumulation, cost classification based on the relationship between costs and financial statement, cost classification based on the level of control of managers Cost classification serves analysis and comparison in order to make decisions on selecting the optimal business project
1.2.2 Building of cost norms and cost estimates in production enterprises
Cost norms are the combination of the spent costs per product unit through trial production or testing Estimation is a plan on using resources in a period, expressed as detailed expectations of the mobilization and use of production factors, financial resources to ensure that the activities of the
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activities
* Building of cost norms: Norm of direct material costs, norm of direct
labor costs, norm of production overhead costs, norm of sales cost, and norm of
corporate governance cost
* Cost estimates
Cost estimates are divided into static estimates and flexible estimates:
Static estimates: are estimates built on a level of operation in order to
provide information of cost, revenue and profit of enterprise that can be
achieved under the selected business project The thesis presented direct
material cost estimates, direct labor cost estimates, production overhead cost
estimates, sales cost estimates and corporate governance cost estimates
Flexible estimates: are estimates built on a series of operational levels to
provide information of cost, revenue and profit of enterprises that can be
achieved under the business projects and possibilities
1.2.3 Determination of costs for cost objects
1.2.3.1 Collection of cost information
Collection of accounting information is often expressed through such stages
as: collection of initial information about costs through a system of documents,
collection, classification and systematization of cost information on accounts
and accounting books, collection of information through a system of accounting
reports
1.2.3.2 Cost determination methods for cost objects
* Traditional cost determination methods for cost objects
- Full cost determination method According to this method, production
costs are all costs related to production, including direct material costs, direct
labor costs, production overhead costs
- Direct cost determination method According to this method, only
variable costs of production are counted in production costs A part of
production overhead costs and the remaining fixed production overhead cost are
10 considered as a kind of periodical cost, which is excluded in product costs
In the traditional methods of cost determination, if basing on the source of
cost data, costs can be determined according to the actual cost method, normal cost method or standard cost method If basing on the characteristics of the
product and technology process to create products, one of the following two
methods of cost calculation can be selected: work-based cost determination and production-process-based cost determination
* Modern methods of cost determination for cost object
- Activity-based cost- ABC is a method to determine costs by identifying
cost centers or activity centers in an organization and assigning costs to products and services based on the number of events or transactions related to the process
of providing a product or service According to this method, overheads are allocated through two stages below:
1 Stage 1: Determination of activity-based costs
2 Stage 2: Allocation of activity-based costs to products, customers
Putting ABC model into use under the theory initially faces a lot of difficulties and is costly; therefore, up to November 2003, the author Robert S Kaplan and Steven R Anderson introduced the concept of activity-based cost determination on the basis of time allocation (Time-driven ABC), in this manner, it is necessary to identify two parameters:
Firstly, how many costs are needed for a time unit of the department with incurred costs
Secondly, how many time units are needed to implement the activity
In addition, ABC method uses activity level – based cost allocation As a result, in the process of ABC system development, three allocation criteria are formed:
+ Operating frequency based cost allocation + Time - based cost allocation
+ Work level - based cost allocation
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- Target cost is the aggregation of methods and administrative tools
permitting to achieve objectives of cost and operation in the stage of
designing and planning new products This method also allows providing the
basis of control at the production stage and guaranteeing these products to
achieve profit targets that have been identified in line with the life cycle of
product
1.2.4 Cost analysis and decision-making on cost management
- Analysis of cost fluctuation through historical information analysis
Analysis of cost fluctuation through historical information analysis includes cost
fluctuation analysis based on cost norms and cost estimates, analysis and
assessment of performance of responsible centers, cost fluctuation analysis
through cost price reports and business performance reports
- Analysis of appropriate information for decision –making and future
forecast Analysis of future information includes analysis of the relationship of
Cost-Volume-Profit, analysis of breakeven point and use of appropriate
information for decision – making
1.3 Cost accounting apparatus models
Management accounting and financial accounting models are under
combined model, separate model and hybrid model
1.4 Experience on cost accounting of several countries in the world
and lessons for Vietnam
- Experience on using cost accounting of the U.K and the U.S
- Experience on using cost accounting of the European countries
- Experience on using cost accounting of the Asian countries
- Lessons learned about cost accounting for Vietnam
From experienced lessons about management accounting of countries, Vietnam
can learn to build a cost accounting system for its enterprises
In short, cost accounting is a part of the accounting system to provide
information for managers to perform functions of corporate governance In the
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chapter 1, the author presents the relationship between cost accounting and cost management, from which the role of cost accounting in providing information for managers to make decisions in performing functions of corporate governance will be found Since then, the thesis systematizes theories of cost accounting associated with the purpose of enhancing cost management in production enterprises from the traditional and modern point of view The thesis focuses on basic contents of cost accounting including: cost classification methods, methods of building the system of cost norms and cost estimates, methods of cost determination, processing and analysis of cost information to serve decision-making Cost accounting theory will be the basis for the construction of a cost accounting system in order to enhance cost management
in production enterprises The thesis also studies cost accounting apparatus models and experience on cost accounting of some countries in the world and draws lessons for the organization of cost accounting model in Vietnam Through the Chapter 1, the thesis systematizes theories of cost accounting to enhance cost management in production enterprises, as a basis to assess the situation and offer solutions to perfect cost accounting to increase cost management in AFPEs
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Chapter 2:
REAL SITUATION OF COST ACCOUNTING AND COST
MANAGEMENT ENHANCEMENT IN AFPES
2.1 Overview of AFPEs
- System of AFPEs
Animal feed processing industry in Viet Nam is a fledgling industry that is
advent and developed in line with the breeding sector in Vietnam Since 90’s
period of reform, animal feed processing industry of Vietnam achieved rapid
development steps According to Animal Feed Association, until September,
2006, there were 249 companies; in 2010, there were 315 AFPEs; in August
2011, there were 486 AFPEs all over the country Number of factories have
increasingly grown along with the development of the industry and have been
distributed in the North, the Central and the South Along with the increase in
number, growth rate of animal feed processing industry has also increased over
the years
2008
Year
Compound
feeds
Concentrated feeds
Total (Thousand tons)
Total (Equivalent conversion) (thousand tons)
Growth rate (%)
14
Source: Breeding Development Strategy to 2020 (Department of Livestock Production 2007)
- Product characteristics and production organization in AFPEs affecting cost accounting Animal feed production technology is characterized
by mass production Animal feed production process is a continuous and closed one
- Management system in AFPEs In investigated AFPEs, there were 22
joint stock companies accounting for 42.3%, 29 limited companies accounting for 55.8% and only one private enterprise, accounting for 1.9%
- Characteristics of financial mechanism in AFPEs Managers take
initiative in determining long-term targets such as investment in expanding or
Compound feeds
Put materials
Grinding
Tank
Mixi
ng
ed-
Steam chamber
to ripen
Palletizin
g
Freezing
Screening Weighing,
packing
Weighing, packing Put
materials
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norms, cost estimates, decisions on the use of resources and in decision on sales
pricing
- Characteristics of accounting apparatus organization and
accounting policies applied in AFPEs All animal feed production activities
are concentrated at the factory, so accounting apparatus organization is selected
in the concentrated form
- Cost management in AFPEs AFPEs are organized in the form of
online functionality Cost information system is mainly provided for the board
of directors by accounting department
2.2 Real situation of cost accounting serving cost management in
AFPEs
2.2.1 Real situation of cost classification
- As regards cost-purpose-and-use-based cost classification: All AFPEs
implement cost classification based on purpose and cost use
- As regards cost-behavior-based cost classification: AFPEs have
initially classified costs based on cost behavior and some enterprises have used
methods to separate mixed costs into fixed costs and variable costs Small and
medium-sized enterprises had higher rate of splitting production overhead costs,
sales cost and corporate governance costs into fixed costs and variable costs than
small-sized ones
2.2.2 Real situation of building of cost norms and cost estimate
- Real situation of building of cost norms: AFPEs have attached special
importance to building of cost norms; however, the rate of building of cost
norms in medium and large sized enterprises is higher than other small ones
- Real situation of cost estimate: Companies have paid attention to
making sales estimates The remaining estimates had a low rate of estimation
2.2.3 Real situation of cost determination for cost object
- Real situation of collection of cost information: System of accounting
documents, system of cost accounting accounts and system of accounting books
have met the needs of financial accounting; however, as for management
16 accounting, real situation of information collection made no contribution to the collection of cost information as requested
- Real situation of cost determination for cost object in AFPEs + Real situation of production cost determination in AFPEs: In
AFPEs, production costs are detailed for each type of product or generally gathered for the whole workshop Cost object is finished product in the last stage
of production technology process; object of cost pricing is each type of product
+ Transfer of production costs and assessment of products in progress: In AFPEs, the entire cost of production will be transferred to Accounts 154 or 631 to calculate cost price
+ Calculation of cost price of finished products: Through the survey,
100% of surveyed AFPEs selected cost object that was each type of product, 46/52 enterprises (88.5%) used simple method, 5/52 enterprises (9.6%) used the ratio method, and only one enterprise (1.9%) selected coefficient method According to the survey results, two among 52 surveyed enterprises calculated cost price according to variable cost method, of which there were one medium-sized enterprise and one large-sized enterprise All the surveyed AFPEs did not apply ABC method
- Real situation of cost sales accounting and corporate governance cost in AFPEs Sales cost and corporate governance cost are generally gathered
into Accounts 641, 642 and at the end of the period they are transferred to Account 911
2.2.4 Real situation of cost analysis and decision – making on cost management
- Real situation of cost fluctuation analysis through historical information analysis
+ Analysis of cost fluctuation based on cost norms and cost estimates:
According to the survey results, most of enterprises made comparison and analysis of cost and cost price 50/52 enterprises (96.2%) compared actual costs with costs of the previous period or estimated costs and 51/52 enterprises (98.1%) made a comparison of actual cost price with cost price of the previous
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+ Analysis and assessment of performance of responsible centers,
departments
As for determination of indicator of gross profit of each product:
According to the survey results, 41/52 surveyed enterprises (accounting for
78.8%) determined gross profit indicator for each type of product
As for allocation of sales cost and corporate governance cost in order
to determine profit at departments: The number of surveyed enterprises
allocated sales cost and corporate governance cost for each type of product,
market, branch according to the following correlative ratio: 16/52 enterprises
(accounting for 30.8%), 8/52 enterprises (making up 15.4%), 4/52 enterprises
(accounting for 7.7%) The criterion that enterprises selected were the allocation
based on output, revenue or prime cost
+ Analysis of cost fluctuation through reports on costs
36/52 enterprises (69.2%) determined the rate of return on investment
capital (ROI), 10/52 enterprises (19.2%) determined Residual Income (RI) and
17/52 enterprises (32.7%) identified the rate of net return on assets
+ Analysis of cost fluctuation through the reports on costs, cost price
and business performance: The number of AFPEs implementing cost
fluctuation analysis through the reports on costs, cost price and business
performance were few
- Real situation of relevant information analysis for decision-making
and future forecast
Output analysis: According to the survey results, up to 50/52 enterprises
(accounting for 96.2%) conducted the comparison and analysis of actual
production output with planed output or design-capacity-based output
Determination of breakeven point: According to the survey results,
AFPEs initially performed determination of breakeven point
2.2.5 Real situation of cost accounting apparatus model: Management
accounting department in AFPEs was organized commonly with financial
accounting apparatus, i.e mixed cost accounting apparatus models
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2.3 Assessment of cost accounting situation in AFPEs 2.3.1 Assessment of real situation of cost classification
- Cost-purpose-and-use-based cost classification: AFPEs classified
costs based on cost purpose and use; however, refection scope of some types of costs was broken
- Activity-level-based cost classification: Rate of enterprises classifying
costs based on activity level is low
2.3.2 Assessment of building of cost norms and cost estimate
- As for building of cost norms: The rate of AFPEs building cost norms
is relatively high Medium-sized and large-sized enterprises had higher rate of building cost norms than small sized ones
- As for cost estimate: AFPEs was initially interested in estimates,
especially sales estimates; large-sized enterprises had higher rate of estimation than small and medium-sized ones Thus, building of cost norms and cost estimate in AFPEs were not carried out completely and synchronously
2.3.3 Evaluation of cost determination for cost objects
- Evaluation of real situation of cost information collection For documents: Accounting documents have not been added indicators
to serve for collecting information about management accounting in order to meet the needs for providing information for cost accounting to enhance cost management in the enterprises
For usage accounts: As for financial accounting, most of AFPEs
complied with the provisions on accounting accounts of financial accounting However, accounting accounts did not serve management accounting
- Evaluation of real situation of cost determination in AFPEs For object of cost accumulation and cost object: AFPEs selected object
of production cost accumulation that was each product or each workshop and cost object being each type of product However, they did not calculate cost for each product batch or determine the cost for each customer or branch to assess the profitability and performance of each customer or branch
For methods of cost determination: All surveyed AFPEs identified cost
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of products according to the actual cost method and determined the cost of
products according to the full cost methods The number of AFPEs applying
normal cost method and direct cost method was few and no enterprise applied
ABC method
- For overhead cost allocation: Overhead costs in AFPEs were arising
costs related to many cost objects and most of the AFPEs selected output as
allocation criteria; the remaining companies used criterion of direct material
costs
2.3.4 Evaluation of processing and analysis of relevant cost
information for decision – making
- Evaluation of cost fluctuation analysis through historical information
analysis
Analysis of cost fluctuation based on cost norms and cost estimates:
Almost enterprises compared the actual output, actual costs, and actual cost
prices with the set forth plan or estimates, etc, in order to assess the
implementation, to detect difference in order to have appropriate corrective
measures for the next period
Analysis, assessment of performance of responsible centers, departments:
AFPEs only evaluated business performance of the whole enterprise through
indicators of ROI, RI and ROA that are used to assess the results of general
business operation of the entire enterprise Due to non-organization of
responsibility accounting, AFPEs did not evaluate the performance of cost
centers
Analysis of cost fluctuation through the reports on cost price and
performance: AFPEs only reported cost price according to the full cost method to
perform analysis of cost price fluctuation according to each factor of direct material
costs, direct labor costs and production overhead costs Reporting system of
management accounting has not been built completely and systematically yet
- Assessment of appropriate information analysis for decision – making
and future forecast
For analysis of cost-profit-volume (CPV) The rate of enterprises
20 determining breakeven point of sales is low, suggesting that many enterprises did not really attach much importance to determine these indicators as a basis for the implementation process
For analysis of appropriate cost information for decision-making on
to the processing and analysis of cost information serving cost management and decision-making
2.3.5 Assessment of real situation of cost accounting model
AFPEs implemented combined cost accounting model, so costs were saved, apparatus was compact but works of management accounting were not professionalized and information was not timely provided
In summary, the need for providing cost accounting information for
managers in AFPEs is very huge in the context of highly increasing price of raw materials, increasing production costs and consumption of products facing a lot of difficulties The thesis used scientific methods to review real situation of cost accounting and cost management enhancement in AFPEs The thesis provided the advantages, limitations and reasons of cost accounting situation in AFPEs in terms
of cost classification, norm establishment and cost estimate, cost determination for cost object and analysis of relevant cost information serving decision-making It also reviewed the current situation of cost accounting model in AFPEs Since then,
it offered conclusions on the real situation of cost accounting and enhancement of cost management in AFPEs that had many limitations, did not fully provide cost information systems necessary for cost management in AFPEs Therefore, it is necessary to improve cost accounting to enhance cost management in AFPEs Assessments and conclusions on the real situation of cost accounting in AFPEs will
be the basis for the thesis to provide specific recommendations to improve cost accounting in AFPEs in the chapter 3, helping to improve effectiveness of cost management, bringing higher profit to AFPEs